Health Care Institutions Are Bullish — But Their Portfolios Don’t Show It

Despite allocating more assets to fixed income in 2018, health care institutions are most optimistic about the performance of equities this year, new research from consulting firm NEPC shows.  

New data published by the consultant on Tuesday showed that 84 percent of respondents expect U.S. equities to return six percent or more during 2019. What’s more, only 25 percent think the economy is in a worse position compared with last year. 

This is just after a year of increased volatility that prompted health care institutions to increase their fixed income allocations by three percent, on average, at the expense of alternative assets. These institutions decreased their allocations to alternatives by four percent on average, the survey showed.  

The NEPC survey polled 68 health care organizations with between $250 million and $2 billion under management. Respondents were mostly chief financial officers, treasurers, and investment-related staff at these organizations, according to the survey, which was conducted during April and May. 

“Last year’s turbulent market has left lasting impressions on healthcare investors, who recognized the impact that investment risk has on the organization,” said Kevin Novak, a consultant at NEPC, in a statement.  

That’s even as 59 percent of survey respondents expect U.S. equities to be the best-performing asset class during 2019, compared with just 13 percent in 2018. NEPC’s survey said this is likely a result of interest rates staying lower for longer.

According to the survey, 79 percent of respondents said they do not expect interest rates to go up during the year. Only three percent say they expect fixed income to be the best-performing asset class in 2019, the survey showed.  

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Despite this, most respondents said they don’t plan to change their asset allocation strategy this year.  

According to NEPC, 72 percent of respondents said they plan to keep their allocation strategy as is, while 16 percent of respondents said they planned to shift into higher risk, more illiquid asset classes. Twelve percent said they were looking to de-risk this year, the survey showed.  

“This is likely due to potential global threats respondents see in the markets: Geopolitical uncertainty was listed as the greatest investment risk, followed by a potential global slowdown,” according to the survey. The survey showed that 58 percent of respondents are concerned about geopolitical risks to their investments.